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Should I Consolidate My Federal Student Loans?

In 2016, consolidating your student loans can save you some serious money, but it’s important to keep in mind that Direct Consolidation Loans are not always in everyone’s best interest.

When thinking about whether or not to consolidate your student loans, you’ll need to take a variety of factors into consideration.

The purpose of this article is to walk you through the process of understanding exactly what direct consolidation loans are, when they make sense, and when they don’t.

Keep in mind that consolidation your federal student loan debt could end up making you ineligible for some of the best benefits programs on offer, so it’s something that should be approached with caution.

Do NOT fail to research the topic before consolidating, because that could end up costing you tens of thousands of dollars!

What Are Federal Direct Consolidation Loans?

Direct Consolidation Loans are the end result of a loan consolidation process.

When you consolidate federal student loans, that means you’re combining multiple student loans into a single, larger loan, which simplifies your monthly payments (leaving you with only one instead of multiple monthly payments).

Federal loan consolidation offers a variety of potential benefits, including:

  • Simplifying your Federal student loan debt by combining all outstanding loans into a single, consolidated loan, with a single lender and a single monthly payment
  • Flexible repayment options, with multiple Federal repayment plans available for those who hold Direct Consolidation Loans, including the ever-popular Income-Based Repayment Plans
  • No minimum or maximum loan amounts, and zero fees, meaning that your direct loans consolidation can combine any number and amount of Federally-funded loans (small or large) without costing you a single cent (Federal consolidation is always free)
  • Reduced monthly payments, for borrowers in certain situations (though this is not always the case, as consolidation can lead you with higher monthly payments, or larger long-term debt obligations than before)
  • Retention of subsidized benefits, meaning that borrowers with Federal subsidized loans are likely to retain the benefits they’ve been offered on those loans, though this is not always the case either and should be explored before consolidating

To summarize, the direct loans consolidation process is simple, free and it could end up saving you some serious money.

How Much Does it Cost to Consolidate Your Loans?

Consolidating Federal student loans is ENTIRELY FREE!

Don’t fall for the scams out there offering to consolidate your Federally-funded student loan debt for a low price, like $500, or even $250.

If you’re contacted by anyone offering to consolidate your loans for a price, you should know that you are not speaking with an approved U.S. Department of Education consolidation servicer, and you should not provide them with any of your personal information.

Everything that these companies claim to be able to do for you can be done entirely on your own, without spending a single cent, so don’t waste money on their scams!

Do not pay anyone to consolidate your loans, or to review your account to see if you are eligible for a loan consolidation.

These people and companies are scam artists, some of whom may be attempting to steal your identity, so be extremely cautious when dealing with them.

Should I Consolidate My Loans?

That depends…

As mentioned above, there are a variety of factors that need to be taken into account when you’re choosing whether or not to consolidate your Federal student loans.

Unfortunately, it’s virtually impossible to answer this question with a simple “Yes” or “No”, since that depends on so many different variables – how much you owe, what types of loans you have, what your current and future financial outlook might be, etc.

However, keep in mind that the main reason most people consolidate their loans is to reduce monthly payments, or to reduce the complexity of tracking their total outstanding debt.

By wrapping a bunch of little loans into one larger loan, you may be able to extend your loan term or modify your loans in other ways that will end up saving you money on monthly payments, but it’s virtually always going to end up costing you more in the long-run, since paying back a loan over a longer period of time means that the loan will rack up more interest along the way.

Sometimes, consolidation really is a magic bullet, allowing you to reduce interest rates, package up a bunch of small loans into a much more convenient single large loan, and end up saving you money both in monthly payments and in the long-run, but this is rarely the case.

To determine if a Direct Consolidation Loan is right for you, you’ll need to analyze your options, speak with your lender (or lenders) and make some calculations to figure out how consolidation will affect your finances.

Don’t forget that you have other options too, with programs like Forbearance, Deferment and Forgiveness all available for Federally-funded student loans.

Look into all the available options before agreeing to a Direct Consolidation Loan, because consolidation cannot be undone, and it’s possible that you may have better alternative opportunities.

Who Is Eligible For Direct Consolidation Loans?

If you have multiple Federally-funded student loans, including at least one Direct Loan, or Federal Family Education Loan (FFEL program loan), then you are eligible to consolidate your student loan debt.

All loans in grace periods, or which have repayment status, are eligible for consolidation, and loans in deferment or forbearance periods count as being in repayment.

Some defaulted Federal student loans may also be consolidated, but only if you first establish agreeable repayment arrangements with whoever currently services your loan, or if you agree to repay the new Direct Consolidation Loan using one of the Income-Based Repayment Plans (the Income Contingent Repayment Plan, the Income Based Repayment Plan, or the Pay As You Earn Repayment Plan).

Please note that loans in an in-school status cannot be wrapped up into a Direct Consolidation Loan.

What is the Interest Rate on a Direct Consolidation Loan?

Direct Consolidation Loans come with a fixed interest rate that lasts throughout the duration of the life of the loan, and which is calculated as follows:

  • The weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1%

There is no cap on the interest rate of a Direct Consolidation Loan.

Please note that there is currently no way to Refinance Federal Student Loan Debt, but that there are multiple bills in Congress (including Senator Warren’s Student Loans Bill) seeking to address this issue.

For those of you who took out loans in the 80’s, 90’s, or early 2000’s before interest rates plummeted, the ability to refinance your loans would be a major boon, so be sure to write or call your Congressional representatives to show your support for Senator Warren’s bill!

Please also note that Private Student Loan Consolidation works entirely differently than Direct Consolidation Loans, with far less legal oversight that can result in skyrocketing (or plummeting) interest rates, depending on market conditions.

What Loans Are Eligible for Consolidation?

Virtually all Federally-funded student loans are eligible for the Direct Consolidation Loan program, including:

  • Federal and Federal Direct Stafford Loans (both subsidized and unsubsidized loans)
  • Federal and Federal Direct PLUS Loans
  • Supplementary Loans for Students (SLS Loans)
  • Federal Perkins Loans (both subsidized and ubsubsidized loans)
  • Federal Nursing Student Loans (NSL Loans)
  • Health Professions Student Loans (HPSL Loans)
  • Loans for Disadvantaged Students (LDS Loans)
  • Federal Insured Students Loans (FISL Loans)
  • Federal Consolidation Loans
  • Federal Direct Consolidation Loans

If your loan is not listed above, that doesn’t necessarily mean it’s not eligible for consolidation, but you’ll need to check with your lender to find out.

Is Having a Direct Loan a Requirement?


As we mentioned above, it is possible to get a Direct Consolidation Loan as long as you have at least one FFEL program loan.

You do not necessarily have to already have a Direct Loan in order to qualify for receiving a Direct Consolidation Loan.

Can You Consolidate Private Loans With Federal Loans?


This is an extremely important point to keep in mind, and one that many people seem to miss.

Direct Consolidation Loans can only include loans that were Federally-funded, meaning loans that were provided through one of the Federal Government’s student loan programs.

Any loan that was issued outside of these programs (referred to as “Private Student Loans”) is not eligible for inclusion in a Direct Consolidation Loan.

It is, however, possible to Consolidate Private Student Loans, but it’s done in an entirely different way.

If you’re having trouble paying off private student loan debt, please visit our page on Private Student Loan Relief.

Can You Consolidate PLUS Loans?


PLUS Loans may be consolidated into a Direct Consolidation Loan, but if you want to consolidate a Parent PLUS Loan, then your new Direct Consolidation Loan will not be eligible for the Income Based Repayment Plan.

This is potentially devastating, and could end up dramatically increasing the amounts of your monthly payments, so be sure to take this factor into consideration before making the decision to consolidate your Federal student loans.

Can You Consolidate Perkins Loans?


You can definitely consolidate a Perkins Loan into a Direct Consolidation Loan, but only if the new Direct Consolidation Loan includes at least one Direct Loan or FFEL Program Loan in the request.

Perkins Loans themselves cannot be combined into a Direct Consolidation Loan, and unfortunately, any Perkins Loans wrapped up into Direct Consolidation Loans will be included in the unsubsidized portion of the Direct Consolidation Loan, meaning borrowers will be forced to sacrifice any subsidies they’ve been previously enjoying on their Perkins Loans.

That last point is a big one, and should be weighed carefully before deciding to consolidate a Perkins Loan.

For most borrowers, we do not advocate wrapping Perkins Loans up into Direct Consolidation Loans, but if you’re hell bent on considering that option, there are some extremely important considerations you’ll want to look at before signing up, including:

Disadvantages of Consolidating Perkins Loans:

  • Perkins Loans consolidation requires sacrificing your ability to have the debt discharged via the Public Service Loan Forgiveness Program (one of the best Federally-funded student loan forgiveness benefits programs, and one that you shouldn’t be given up lightly!)
  • Perkins Loans come with a grace period of 9 months, meaning that after graduating, dropping out of school, or dropping below half-time student status, you’ll have 9 months before you need to begin paying back your loan, but that grace period benefit must be sacrificed in order to consolidate your Perkins Loan into a Direct Consolidation Loan
  • Perkins Loans do not accrue interest when placed in deferment, but when they’re rolled up into the unsubsidized portion of a Direct Consolidation Loan, any interest that accrues on the loan during deferment becomes the responsibility of the borrower (which could cost you some serious coin!)
  • Perkins Loans generally have a lower interest rate than Direct Consolidation Loans, which means they’re less expensive in the long-run, so consolidation is likely to increase the amount of total money you owe to the Federal Government

Advantages of Consolidating Perkins Loans:

  • If you have no ability to meet your monthly payments because they’re simply too high, then consolidating your Perkins Loan might help make it easier in the short-term, since you can extend your loan repayment period past 10 years, reducing monthly payments

Can You Consolidate In-School Loans?


It’s not possible to consolidate any Federal student loans that have the in-school status, including any loans that have not yet completed their 6 month grace period (or 9 month grace period for Perkins Loans).

Can You Consolidate Loans in Deferment?


Loans in deferment are eligible for inclusion in a Direct Consolidation Loan, including loans that are currently in an in-school deferment status (this sort of violates the in-school rule above, but it’s accurate information).

Can You Consolidate Loans in Forbearance?


Loans that are in forbearance remain eligible for consolidation, which could be extremely useful in certain circumstances.

Can You Consolidate Loans in Default?

Yes, but not always.

Loans in default can be consolidated if you do one of the following:

  • Work out satisfactory repayment arrangements with whoever services your loan before consolidating (basically getting your lenders approval for the consolidation process)


  • Agree to pay off your new Direct Consolidation Loan using one of the income-based repayment plans (have this in writing for your lender)

Loans in default cannot be consolidated if:

  • A judgment has been issued against the defaulted loan, unless you are able to get the judgment order vacated (dismissed)
  • The only loan attempting to be consolidated is a defaulted Direct Consolidation Loan, meaning that there are no other eligible loans to wrap up with the one in default

Collection Costs

When you consolidate loans that were already in default, and which have incurred collection costs, it’s possible that those charges will be incorporated into the total balance of your new Direct Consolidation Loan.

This occurs when the holder of your defaulted loan (or loans) has paid a collection agency to come after you for the money you owe, and the collection agency has charged the original lender (the U.S. Department of Education or one of their Guaranty Agencies) for the work they did to come after you.

Unfortunately, your new Direct Consolidation Loan would include collection costs up to 18.5% of the principal and interest that remains outstanding on your defaulted loan(s).

And it’s even worse for defaulted Perkins Loans and Health Profession Loans – where collection costs can be as high as the total amount owed at the time the defaulted loan gets paid off through the consolidation process.

What does that mean to you? Be careful about consolidating defaulted loans!

Rehabilitation vs. Consolidation

Instead of consolidating a defaulted loan, it’s a much better idea to rehabilitate the loan first, then consolidate it once it’s back in repayment status.

Here’s why:

  • Consolidating a loan in default does not clear it from your credit record, so you’ll continue to show a defaulted status on that loan, even after the consolidation loan pays off your defaulted loan

The note on your credit score that your loan was in default, then “paid in full”, will remain on your credit record for up to seven years, potentially ruining your eligibility to take out any future loans like mortgages, auto loans, or even credit cards.

By rehabilitating your defaulted loan before consolidating it, the loan holder will update your credit record to remove the default status from the loan, allowing you to clear your credit score and improve your standing with potential lenders.

How To Rehabilitate a Defaulted Loan

To rehabilitate a Direct Loan or FFEL loan in default you will need to work with your lender to satisfy the following conditions:

  • Determine a monthly payment amount that you can actually pay, then issue at least 9 full payments within 20 days of their monthly due dates during a period of 10 consecutive months

The only way to make this happen is by contacting whoever is currently servicing your loan (the institution you’re issuing monthly payments to) and working out a schedule with them.

Keep in mind that they have access to all of your financial information, and that they will be willing to work with you on reducing your monthly payments, but only up until a certain point.

If they think you’re wasting money on new clothes, expensive trips, or frivolous personal items that aren’t necessities, then it’s going to be extremely difficult to get them to negotiate a much lower monthly payment.

The good news is that by rehabilitating your defaulted loans, you become immediately eligible for all sorts of other important Federally-funded benefits, like the Obama Student Loan Forgiveness Program, the Public Service Loan Forgiveness Program, and other financial assistance opportunities.

Can You Consolidate Loans in Grace or Repayment?


Any loans that are in either grace or repayment, including loans in deferment or forbearance, may be rolled up into a Direct Consolidation Loan.

However, keep in mind that as soon as the loans are consolidated, you’ll lose any remaining grace period time that was left, unless you’ve requested to delay the processing of your consolidation loan application.

You will end up receiving your first bill within 60 days following approval of your new Direct Consolidation Loan.

The biggest reason to consolidate loans in a grace period is that if your loan was one of those disbursed before July 1st, 2006 which came with a variable interest rate (lower during the grace period), then consolidating that loan may result in a lower interest rate on your new Direct Consolidation Loan.

Obviously, reducing your interest rate is a compelling reason to consolidate your loans, so if you’re one of the lucky people who are facing this situation, we would absolutely recommend consolidating as soon as possible.

Can You Re-Consolidate An Existing Direct Consolidation Loan?


Fortunately, you’re not limited to a single consolidation, and you can roll up a previously consolidated loan into a new one, as long as you’ve got another eligible loan to add into the mix.

Additionally, it’s possible to add loans to an existing consolidation for as long as 180 days after your Direct Consolidation Loan was disbursed, so everything doesn’t have to be wrapped up all at once.

However, keep in mind that you cannot re-consolidate an existing Direct Consolidation Loan without adding new eligible loans.

Can You Consolidate Federal Consolidation Loans?


You can turn a Federal Consolidation Loan into a Direct Consolidation Loan under the following circumstances:

  • You can consolidate an existing Federal Consolidation Loan into a new Direct Consolidation Loan if you add at least one new FFEL or Direct Loan into the batch of consolidated loans
  • You can consolidate a single Federal Consolidation Loan (without having to add any new FFEL or Direct Loans) if that loan is in default, or if it has been submitted to a guaranty agency for default aversion, but if you do this, you’ll be forced to put the loan on one of the income-based repayment plans
  • You can consolidate a single Federal Consolidation Loan (without having to add any new FFEL or Direct Loans) if you are planning on using the Public Service Loan Forgiveness Program or the no accrual of interest benefit program as an Active Duty military service member

Federal Consolidation Loans may be consolidated without including any new loans (under the two conditions explained above), but existing Direct Consolidation Loans can only be consolidated by adding at least one more new eligible loan into the mix

Can I Consolidate My Loans With My Spouse’s Loans?


Even if you are married and filing taxes jointly, it’s not possible to combine loans into a single Direct Consolidation Loan and pay them off as joint borrowers.

How Long Does it Take for My Application to be Finalized?

60-90 Days.

Typically, it takes 60-90 days for your application to get approved and finalized.

If you apply via the online application process, it’s possible to reduce that time frame and receive your approval significantly sooner, but that doesn’t always work.

Can I Delay Processing My Consolidation Application?


You can delay having your application processed to move the final approval closer to the end date for your grace period, as long as one or more of the loans you’re consolidating is currently in grace.

Why would you want to do this? Because it helps you consolidate a batch of loans without having to become immediately responsible for repaying any of those loans that are still in grace.

Remember, as soon as your new Direct Consolidation Loan is issued, any grace period left on any of your loans is immediately cancelled, and you become responsible for issuing repayment within 60 days.

To delay your repayments coming due early by having the grace period ended, you’re able to choose a date of up to nine months in the future on your application, specifying that date as the time you want the consolidation to officially occur.

If your grace period is more than 9 months away from ending, then don’t submit your application yet, because you’ll end up losing out on some of that grace time, which would have saved you money in the short-term.

To request a delay in your processing, simply enter the expected grace period end date when submitting your Direct Loan Consolidation application.

If you leave that part blank, then your application will be processed immediately, and you’ll end up losing whatever grace period was left on your eligible loans as soon as processing has finished, so be careful!

When Will My First Monthly Payment Be Due?

Within 60 Days of Processing

Once your application is approved and your Direct Consolidation Loan is disbursed, you will receive your first bill within 60 days.

Your payments will be due monthly, can be repaid under any of the eligible Repayment Plans available to you, and should be made by sending payment to whoever services your loan.

You can make payments either via snail mail, or by enrolling in the Automatic Debiting system, which will give you a 0.25% discount on your interest rate as long as you continue to use it.

To send a payment in the mail, ship it to:

  • U.S. Department of Education
  • Direct Loan Payment Center
  • P.O. Box 530260
  • Atlanta, GA 30353-0260

Please keep in mind that failing to receive your monthly bill doesn’t mean your payments won’t be due, and that any changes to your address or name must be submitted to your Federal Loan Servicer in writing.

Can I Prepay a Direct Consolidation Loan?


You may prepay all or part of your remaining loan balance at any time, without prepayment penalties or other fees.

If you make a payment that’s higher than your standard monthly payments, the excess amount will be applied to any charges or collection costs that you’re incurred, then to outstanding interest, and finally to principal.

If you have no outstanding interest, then your prepayment will be applied entirely to the principal balance left on your loan.

If your prepayment amount is more than twice your typical monthly payment, then your next payment due date will be advanced, unless you specify otherwise.

You’ll be notified of a revised due date if that occurs.

How Do I Apply for a Direct Consolidation Loan?

It’s easy!

Here’s the step-by-step process you’ll need to follow to apply for a Direct Consolidation Loan:

1. Put together all the information about your existing Federal student loans, including:

  • Loan Types
  • Current Balances
  • Lender’s Names & Addresses
  • Account Numbers
  • Current Interest Rates

NOTE: You can find these details by navigating to

2. Put together all of your personal information, including:

  • Name
  • Address
  • Phone Number
  • Social Security Number
  • e-Mail Address
  • Driver’s License Number
  • Date of Birth
  • Two Reference Contacts (Two People’s Names and Phone Numbers)
  • Employer Information (Name, Address and Phone Number)

3. Find a lender you want to work with

  • Pick a lender that offers Direct Consolidation Loans (not all of them do)
  • If your current lender provides them, then it will be easier to complete the process because they already have all of your information on file
  • If your loans are in good standing, you may be able to get a better deal by switching lenders
  • If your loans are in poor standing, it may be difficult (or even impossible) to switch lenders, but you might also have to battle your existing lender in order to receive their approval
  • Make sure that the lender you’re choosing offers a minimum loan balance low enough to accommodate your total outstanding loan debt – some lenders require a minimum balance of $7,500 for consolidation loans, others require $15,000, and these requirements can vary further, so make sure to ask

4. Complete the Direct Loan Consolidation application

  • Depending on your lender, you’ll have access to a variety of options here, with some lenders allowing you to fill the forms out entirely online, others over the phone, and some requiring you to be there in person
  • Make sure you’ve collected all the details that your lender requires before you start going through this process, because it can be time consuming

5. Choose your Repayment Plan

  • Your lender will offer you one or several repayment plan options, and you should know the details about how each repayment plan works before you have this conversation, because it’s incredibly important
  • Some repayment plans save you money in the short-term, but end up costing you a ton of money in the long-run, while others will get your loan paid off more quickly, and at a lower total cost
  • Some are based in income, while others are simply based on total outstanding loan balance and time left to pay off the loan
  • Visit our page about available Federal Student Loan Repayment Plans to find details about how each plan works, and choose which plan you think will be best for your specific financial needs

6. Read, then sign, your Promissory Note

  • Every lender will require you to sign a Promissory Note, but some will you do it electronically, while others will require a hard-copy signature
  • Find out what’s required, read through your entire Promissory Note (looking for errors and issues), then sign it and return it to your lender

7. Keep making monthly payments

  • Whatever you do – don’t stop making your monthly payments, because it can take six to ten weeks for everything to get processed and funded, and you don’t want to miss a payment
  • Keep making payments until your lender tells you that the Direct Consolidation Loan has been fully approved and disbursed, then start making payments based on your new repayment schedule

8. Review your loan disclosure statement

  • Once your new Direct Consolidation Loan is disbursed, you’ll receive a loan disclosure statement, which contains all the details about your loan
  • Make sure to read through this entire statement, ensuring that everything contained within it is correct, then file it away someplace safe just in case you need it down the line

I wish I could point you to some URL or form where you can start the application process, but because it’s different for each lender, you’ll have to find those on your own.

The first step to getting your Direct Consolidation Loan is calling your lender, letting them know that you want to consolidate, then asking them for instructions on how to complete the process.


If you have any questions that weren’t answered above, please feel free to post them in the comments section below.

I’ll do my best to respond within 24 hours, and if I can’t answer your question directly, I’ll send you to someone who can.

Alternatively, feel free to contact the Federal Government’s official Loan Consolidation Information Center, which you can reach by calling 1-800-557-7392.

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Tim's experience battling crushing student loan debt led him to create the website Forget Student Loan Debt, where he offers advice on dealing with excessive student loans and advocates a cautious approach to funding education costs via borrowed money.